NORWICH – Norse Energy, Inc. has invoked a standard provision in oil and gas leases that postpones the expiration date when an unforeseen event prevents the terms from being followed by either party.
Enacting the provision, called Force Majeure, is permissible, Norse Energy claims, because an executive order issued by outgoing Governor David Paterson in late December prevents the company from obtaining the required environmental permits needed to meet its lease terms.
The Norwegian energy company has 180,000 acres of mineral rights throughout Central New York, either leased or owned outright, to four subsurface formations, including the much publicized Marcellus Shale. It has offices in Buffalo and Norwich and is actively drilling and producing natural gas from wells in the Herkimer sandstone in Smyrna, Plymouth and Preston.
“This notice is designed to preserve our substantial investment in the future shale potential of New York state,” Norse CEO Mark Dice said in a statement.
Paterson’s executive order calls for further review of high-volume hydraulic fracturing combined with horizontal drilling and barred the issuance of new permits until May. Governor Cuomo’s office later extended that order to “on or about June 1” with at least a 30-day comment period to follow.
Paterson had already directed the New York Department of Environmental Conservation back in 2008 to review its draft environmental quality review statement as it applied to the drilling technology. The newest order came in place of vetoing legislation that would have halted existing and potential natural gas and oil exploration in New York.
Norse’s claim is being challenged by a lawyer who represents landowners in Chenango, Broome and Tioga counties. The lawyer, Christopher Denton of Elmira, is not currently representing any landowners in Chenango County who are contesting the lease suspensions, he said, but was asked by the Chenango County Planning and Development Department for an opinion on the matter.
The lawyer prepared a draft letter for landowners affected by Norse’s force majeure to send in response to the company’s notification.
Norse is essentially trying to take advantage of something that’s not new, according to Denton. The lawyer said there is no moratorium on drilling and fracking in New York State, therefore there is no force majeure event. He said the executive order only removes what he called a “short cut” method of obtaining a drilling permit.
He said well drilling permits can still be obtained by complying with the normal, site specific State Environmental Quality Review Act requirements. Site specific SEQRA procedures weren’t rescinded when the DEC created a Generic Environmental Impact Statement procedure that enables companies to submit the same form for multiple drilling sites. In addition well permits are currently being issued for all wells which do not require high-volume hydraulic fracturing combined with horizontal drilling.
“The fact that the old way of having to comply with SEQRA by the performance of a site specific Environmental Impact Statement is still in existence belies the company’s contention that an event of force majeure has occurred,” he said.
The president of the Central New York Landowners Coalition concurs with Denton that Norse would have a difficult time upholding the clause.
“I can understand why they are trying. If they extend their leases a half of year, time is money,” said Brian Conover, “but I don’t think it’ll hold up.”
There are currently existing lawsuits churning within the state and federal court systems filed by landowners against other natural gas drilling companies that have filed for force majeure. A nothern Broome County coalition sued Chesapeake Energy for claiming force majeure following Paterson’s initial directive to the DEC. And landowners in Colesville have sued Belden & Blake Corp. when the company attempted to prevent leases from expiring.
“We’ll be watching what happens in these cases,” Denton said.
But Conover said the bigger issue is that landowners and economic developers are frustrated with the state and its failure to follow through in a reasonable amount of time to complete the study by the DEC.
“As much as people may become frustrated with Norse about this force majeure attempt, our real frustration is with the state of New York,” he said.
The controversial drilling technology uses three million gallons of water combined with chemicals, soap and sand under high pressure per fracturing job to release natural gas from tight shale formations. Unlike in other states, including Texas, Louisiana, West Virginia and Pennsylvania, New York has headed to calls from environmentalists and politicians who say the science is flawed and the practice could potentially contaminate drinking water supplies.